During the course of one year, alcobev players have witnessed different scenarios playing out in the market. To arrest falling revenues due of Covid, states levied higher taxes on products and at the same time allowed their home delivery. In an interview report with BusinessLine, Neeta Kapoor, CEO and Suresh Menon, secretary-general, of International Spirits & Wines Association of India (ISWAI), an apex body of the premium alcobev sector, share insights into the fresh challenge that the industry players face because of high inflationary pressures.
How has the alcobev industry fared during the entire phase of the second wave of Covid and what challenges does it face now?
Nita Kapoor: Alcobev manufacturers are facing a fresh challenge of sustaining operations, in the states that ISWAI members operate in, because of inflation. We have seen recoveries only in the last two quarters, and are hoping to end the year with pre-Covid sales. The overall decline we have faced in the Covid year was about 12 per cent in the fiscal year.
How deep has been the impact on the industry players?
Kapoor: There has been a decline in volume, runaway inflation on almost all direct inputs ranging from ENA at about 5 per cent, the labels and closures by about 15 per cent, the cartons have shot up to 30 per cent. (The inflation figures quoted are F22 vs F21). If the states do not grant us inflation-adjusted price, then it will be a challenge to sustain operations because the supplier share of the total revenue earned in alcobev has reduced to around 16 per cent of the total percentage on an average nationally, which five years ago was about 23-25 per cent. With that kind of pressure how are we to continue contributing to the state’s revenue where we are the single largest contributor?
Some of the biggest players in the industry have been asking the government to include the liquor industry in the GST list. Has there been any progress on this front?
Kapoor: We have told the government that the revenue maximisation approach will lead to diminishing returns sooner than later. Secondly, if the unorganised sector gets into the organised arena, it will lead to increased compliance, check on leakage revenue and improved product quality and more. Given the low per capita consumptions of the country, which is about 5.9 per cent, it needs to be managed responsibly.
Suresh Menon: Revenues from the alcobev industry can’t grow unless the industry is sustainable. In 2011, Maharashtra increased duties by 50 per cent and since then, their revenues from the industry have been growing by 1 per cent or even less. Following our intervention, West Bengal reduced the duties.
As most big players don’t own most of their factories and rely on contract manufacturing, have you come out with guidelines for better practices at the workplace and protection of legal rights of workers?
Kapoor: There is an economic model for franchise operations. Most global companies which have operations in India are essentially governed by their headquarters. They have to report all the best practices they are compliant with. In case of issues, we will be happy to take it up with any specific member.
There have been recent issues about cartelization, which may not be specific to your industry. Nevertheless, such issues can hurt the industry’s image .
Kapoor: At ISWAI, there is a clear demarcation of roles between member companies and us. ISWAI’s role is to advocate for Ease of Doing Business, and talk about the impact of inflation and sustenance challenges. All else rests on how individual members want to run their businesses.
Why have you taken that kind of position because lawmakers might point out that self-regulation among industry players is as important as asking for any benefits?
Kapoor: We are an industry body. At the same time, our scope of work is well-defined, else the credibility and stature of the industry body will come into question. We draw a line here – let players address the issue of managing strategy on pricing, marketing competition, etc. and we do the rest.
What has been the stand of ISWAI with respect to high duties on imported liquor? Have you also been in discussion with the Scotch Whisky Association to resolve this matter?
Kapoor: To call out BIO (bottled in origin) and imported products as a threat to Indian industry is like crying wolf. Our ask is to bring down customs duty from 150 per cent to about 75 per cent immediately, and thereafter, the resting rate of 35 per cent at end of 5 years. At the same time, we are waiting for the start of FTA (Free Trade Agreement) conversations with the UK.